U.S.-led Mideast peace talks set to resume Wednesday have been complicated by Israel’s announcement that it would build almost 1,200 homes in Jewish settlements, even as it agreed to release longtime Palestinian prisoners.

Israeli and Palestinian negotiators are scheduled to meet in Jerusalem to continue talks that U.S. Secretary of State John Kerry helped to arrange in Washington last month following months of shuttle diplomacy.

Kerry said the settlement announcement won’t halt talks. “We have known that there was going to be a continuation of some building,” Kerry, on a trip to Colombia, told reporters Monday in Bogota. “Once you have security and borders solved, you have resolved the question of settlements.”

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The U.S. hasn’t changed its position viewing settlement construction as illegitimate and has “communicated that policy very clearly to our friends in Israel,” Kerry said.

Palestinians say Israeli construction in the battle-won West Bank and east Jerusalem is a war crime that violates the Fourth Geneva Convention. Israel says the settlements don’t fall under the convention because the territory wasn’t recognized as belonging to anyone before the 1967 war, in which Israel prevailed, and therefore isn’t occupied.

Housing Minister Uri Ariel announced on August 11 that the government would solicit bids for construction projects in the two territories, which the Palestinians see as the core of a future state. “No country in the world takes orders from other countries about where it can and cannot build,” Ariel said.

Hours later, a special ministerial committee agreed to free 26 Palestinian prisoners involved in attacks on Israelis, as part of the agreement to renew peace negotiations after a three- year breakdown.

The prisoners were to be released to the West Bank and Gaza Strip at least 48 hours after their names were posted shortly before midnight on the Israel Prisons Service website, the government said in a text message. They are among 104 to be freed over several months.

The official Palestinian news agency Wafa cited a Palestinian cabinet minister as saying the release would take place late tonight.

In addition to the plans announced by Ariel, the government has authorized building 900 housing units in an east Jerusalem area close to the West Bank town of Beit Jala, Israel’s Channel 10 television news reported late Monday. Prime Minister Benjamin Netanyahu’s office issued a statement in response, saying the apartments were still in the planning stage and previous Israeli administrations have built housing in the same area.

“It’s understood that in any future arrangement, this area is going to remain part of Israel,” according to the statement, which cited the prisoner release as proof of the government’s “serious intentions” and commitment to the peace process.

Palestinian Authority President Mahmoud Abbas is still leaning toward continuing the talks despite Israel’s announcement of settlement construction plans because of promises he received from the U.S., the Haaretz newspaper reported on its website, citing an unidentified Palestinian official.

The plans to free Palestinian prisoners ignited a second day of protests, with relatives of victims demonstrating outside the Defense Ministry in Tel Aviv demanding the inmates be kept behind bars. Of the 26 to be freed, 21 were convicted of homicide, with the rest imprisoned on charges of attempted murder or kidnapping, according to the list. Most have been incarcerated for at least 20 years.

Representatives of the victims’ families asked Monday to meet with members of the ministerial panel that agreed to the release in a bid to stop it, Israel Radio reported.

Israel holds thousands of Palestinian prisoners. Because most Palestinian families have had a relative in an Israeli prison at some time, the release of inmates is a priority for the Palestinian leaders, and Israel’s promise to free more than 100 created goodwill needed to get negotiations moving again.

The announcement of new settlement construction, by contrast, was perceived by the Palestinians as a sign of bad faith. Chief Palestinian negotiator Saeb Erekat accused Israel of sabotaging peace talks just as they are just getting started.

“The Israeli government must choose between negotiations and dictates,” Erekat said in a telephone interview. “By announcing new bids every day and every week, Israel is out to destroy the negotiations before they start and destroy the principle of the two-state solution.”

Israel captured east Jerusalem and the West Bank from Jordan in the 1967 Middle East war, then annexed east Jerusalem in a move that is not internationally recognized. The U.S., United Nations and European Union consider settlement construction an obstacle to peacemaking.

The U.S. delegation in Wednesday’s talks will be led by Martin Indyk, the special U.S. envoy to the Middle East. Indyk met with Abbas in the West Bank city of Ramallah over the weekend and emphasized the U.S. commitment to support the negotiations, according to Wafa. He also met with Israeli President Shimon Peres.

The Israeli announcement comes “at a particularly sensitive time,” Marie Harf, a U.S. State Department spokeswoman, told reporters Monday in Washington. “Our focus has been getting both parties to the table, which they are now, to talk about the whole range of issues,”

The construction announcement laid bare deep divisions in Netanyahu’s coalition and even within his own Likud party that encumber his declared commitment to negotiating an end to the conflict with the Palestinians.

Ariel belongs to the Jewish Home party that opposes the establishment of a Palestinian state and wants to annex the West Bank areas where the new settlement homes are to be built. Others in Netanyahu’s coalition, such as Lapid of the Yesh Atid party, back a two-state solution, albeit on less territory than the Palestinians claim.

Lapid said the government was undermining the peace talks by announcing the new settlement construction plans.

“This use of resources for middle-class housing to unnecessarily defy the U.S. and poke sticks in the wheels of the peace talks is not right and is unhelpful to the peace process,” Lapid said in an e-mailed statement.

Unlike in its earlier peace efforts, the Obama administration hasn’t pressed Israel to halt all settlement construction. A State Department official, who asked not to be identified discussing the diplomatic effort, said Kerry decided not to push the issue, which scuttled talks in 2010 when Netanyahu refused to extend a freeze and Abbas walked away.

—With assistance from Calev Ben-David and Fadwa Hodali in Jerusalem and Andrew Willis in Bogota.